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Unformatted text preview: Corporate Tax - Streng, Fall 2000 Chapter 1 A. Corp = distinct taxable entity, separate and apart from its owners 1. double tax regime 2. Subchapter C of tax code B. Compare to pass-through entities 1. partnerships 2. Subchapter S corp (closely held corp) C. Common Law of Corp Taxation 1. sham transactions - p.8 2. substance over form 3. business purpose doctrine 4. step transaction doctrine D. The Corp Income Tax 1. Code § 11 - (p. 9 of Code) a. more profitable corporations are prevented from enjoying the benefits of the lower graduated rates (1) by the additional 5% tax on taxable income in excess of $100K up to a maximum of $11,750 (a) which is the amount of tax savings from the lower rates on the first $75K of taxable income (b) tax rate “bubble” creates 39% marginal bracket on taxable income b/t $100K - $335K (2) taxable income > $15M = increase tax by the lesser of 3% of the excess, or $100K (a) 2 nd (double) bubble = that corporations w/ income > $18,333,333 are taxed at flat rate of 35% on all income 2. 11(b)(2) - denies the benefit of lower marginal corp rates to “qualified personal service corp” a. “QPSC” - defined in § 448(d)(2) - doctors, lawyers, entertainers, & other incorp’d service providers b. subject to 35% flat rate on all taxable income 3. Code § 63(a) taxable income = gross income minus allowed deductions a. see pp. 11-13 for differences b/t individual and corp taxation principles b. one major difference - dividends rec’d deduction (1) can deduct 70% (or up to 80% or 100%) of dividends that the corp receives from other corporations (2) to prevent multiple taxation as earnings pass through a chain of corporations (3) effect of 70% deduction = 10.2% max rate on dividends (a) (34%)(30% includable portion) = 10.2% c. charitable contributions limitation for corp = 10% of taxable income d. corp capital losses corporations may deduct capital losses only to the extent of capital gains during the year (1) excess cannot be offset against ordinary income (2) can be carried back 3 yrs and forward 5 yrs 4. Taxable Year and Accounting Method a. C corp can adopt either a calendar year or a fiscal year (1) exception = “personal service corp” must use calendar year (a) unless they can show valid business purpose for using a fiscal year (i) in which case the corp does not have to make § 444 election and is not subject to the distribution requirements and deduction limitations 1 (b) “PSC” = principal activity is the performance of personal services that are substantially performed by “employee-owners” who collectively own more than 10% of the corp’s stock (c) § 444 = permits use of fiscal year w/ a “deferral period” of not more than 3 months (can use taxable year ending either 9/30, 10/31 or 11/30) (i) to prevent whipsaw of the system, PSC must make certain minimum distributions (e.g., compensation) to emp’ee/owners during the portion of the emp’ee’s fiscal year that ends on 12/31 (ii) if minimum distributions not met, corp must defer...
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- Spring '00
- basis, Taxation in the United States, CORP